L Th Hi Vn-Trn Th H Giang 1

MACROECONOMICS
L TH HI VN- TRN TH H GIANG
IB2015C
2016-2017

IS GDP A PERFECT MEASURE OF SOCIAL WELLBEING?

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L Th Hi Vn-Trn Th H Giang

L Th Hi Vn-Trn Th H Giang

GDP is a powerful instrument to describe standard of living. However, many skeptics

argue that the measurement of GDP does not estimate several crucial components
which tremendously contribute to our pleasure in daily lives. This essay discuss about
the effectiveness of GDP to answer the question whether GDP is perfect measure of
wellbeing.
On the first hand, Gross Domestic Product is efficient while measuring the health of
economy. As GDP is the sum of total income as well as total value of final goods and
services produced domestically, high GDP is equal to high income which is a
foundation to earn satisfaction and a productive economy helping citizens enjoy more
convenient. Generally, a rise in GDP can be inferred as the development in quality of
lives, at least materially. In addition, since happiness is subjective, abstract and
difficult to measure, GDP is good mathematically for solving this complex task since it
took decades to invent GDP and agree on what to include in it.
On the second hand, GDP has its shortcomings. Most obviously, it does not count
leisure as one of its components. Thus, if GDP were a perfect indicator of social
welfare, people would be happier working more and maybe even without holidays
and time for strengthen their relationship with friends and families. But the fact is
clearly different, people want numerous things rather than money such as
entertaining, relations and sport, those are such make our lives more worthwhile
excluding money. Working does not provide joy, especially without days off as money
or the greater quantity of good and service produced cannot compensate all the loss
from leisure. For example, according to the World happiness report, despite high
productive capacity, Japanese (rank 46th) seem far less satisfied with their lives
compared to Mexican (rank 14th) who always enjoy time for small talks and cuisine.
In Mexico, lunch is a 1 to 2 hour affair with a two or three course meal, whereas in
Japan, people only have 15 minutes to eat. The longest study of adult life the
Harvard Study of Adult Development also pointed that high income does not make
people happier though it does help us to achieve a good life more easily.
Another thing that GDP omits is the value of most activities happening outside
market. Non-market activities such as home markers service, parental childcare,
volunteer effort, home improvement projects, etcetera create numerous useful
output for the society, yet are unpaid. Therefore, they do not have any market value
to be added in GDP. For example, when a carpenter makes his own furniture or a lazy
person start realizing his negative habit and decide to do the chores for his family
rather than being a couch potato, GDP does not change. But ironically, if that slothful
person continues to be lazy and purchase ready-made foods instead of making his
family a meal, he definitely contributes to GDP rise. Also, volunteer activities alleviate
the hardship that the impoverished going through and bring them heart-warming
moment. Unfortunately, such praiseworthy works are being neglected by GDP, which
leads to understating the nations output.
Thirdly, even though GDP can reflect increase in national income, increase in GDP per
capital does not ensure that people in that country are better off, at least not
majority of population. From 1973 to 1993, while GDP rose by over 50 percent, wages
suffered a decline of approximately 14 percent. In addition, GDP does not take into
account the difference in income distribution between the rich and the rest. It solely
shows the increase but might not see difference between a billionaire increases his
wealth by $10 million and 1 million people increase their wealth by $10,000. Because
of that, average income may rise but it is not signal of improvement of living

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standard. The higher GDP probably means the inequality could grow. GDP counts it as
positive sign even if mostly national income came from the wealthy. For example, in
countries such as Australia, the United Kingdom and the United State, between 20%
and 50% of total income gains have accrued from the top 1% of households. Wellbeing could be maximized if the income is disposed more evenly. A society with a
more even distribution of wealth will have a greater level of well-being at the same
level of GDP per capita as one that has a less even distribution.
Well-being also includes social and spiritual developments that are forgotten by GDP.
In the past, there are uncountable changes in humans mindset and social norms that
removes constraints hampering individuals from achieving fully happy lives. For
example, women status has altered after a lot of movements for womens rights.
Undoubtedly, women in the modern world today enjoy much more equality and
opportunities to unlock their abilities. Also, many prejudices, superstition have
disappeared, people have been less likely to suffer those more than ever. However,
GDP only counts shifts in the economy which means that by the GDP yardstick,
material affluent is everything. Althought it is undeniable that with money, people
can have access to better social lives but norms are not changed by money. While it
also takes a long time for money to create social development, happiness always
relies heavily on personal rights, freedom and feeling.
GDP cannot calculate negative externality, such as pollution, which is not deducted
from GDP. Two countries could have the same GDP growth rate but one has cleaner
air, more pure water, and therefore is obviously better off than the other country
regardless of GDP. Dumping toxic chemicals without any purified techniques, exploit
uncontrollable natural resources... Those actions have effect of overstating
productivity, raising income. However, such depletion or degradation of the natural
resources used to produce goods and services does not shown on GDP. As a result,
the more the nation depletes its natural resources, the more the GDP goes up. In
spite of that, how can people raise their quality of life if they daily deal with
contaminated environment. For example, Chinas GDP is one of the highest in the
world, but it emits more carbon dioxide emissions per year than any other country.
High CO2 emissions does not equal to a country with high welfare.
In conclusion, happiness is a much more complicated concept than income. And GDP is far
from a perfect metric as it cannot capture leisure, non-market activities, income
distribution, social changes and environment. Therefore, when trying to define and
measure quality of life, a more comprehensive and wide-ranging approach is needed,
for example, a survey.
Word count: 1086

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Reference
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